A New Open Economy Macroeconomics Model of the Czech Economy
| Authors | |
|---|---|
| Year of publication | 2006 |
| Type | Article in Proceedings |
| Conference | New Developments in Macroeconomic Modelling and Growth Dynamics: Book of Abstracts |
| MU Faculty or unit | |
| Citation | |
| Field | Economy |
| Keywords | New Keynesian DSGE model; New Open Economy Macroeconomics; monetary policy; Taylor rule; inflation targeting; rational expectations; Bayesian simulations |
| Description | The paper introduces a New Keynesian model of the small open Czech economy. The model is related to the New Open Economy Macroeconomics (NOEM) and is based on the Dynamic Stochastic General Equilibrium (DSGE) approach. It is derived from the microeconomic foundations and consists of representative agents – households, firms and a central monetary authority. The foreign sector is exogenous. The representative household optimizes its behavior – it maximizes its utility function which contains a habit formation factor and is influenced by the purchase power parity that includes some rigidities. A representative firm maximizes its profit function and sets the optimal price of the production in a Calvo style. The result of this optimization is a New Keynesian Phillips Curve (NKPC). The central bank conducts monetary policy according to a modified Taylor rule. The monetary regime is based on inflation targeting. Parameters of the model are estimated with Bayesian simulation techniques using apriory set information. The estimated model seems to give a suitable approximation of behavior of the Czech small open economy. |
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